PEG Ratio - Kaminis Yield Adjustment (PEG-KYA)

Markos Kaminis earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The Price-to-EPS-to-Growth Ratio (PEG) seeks to value a stock relative to growth expectations and is useful for investors seeking Growth at a Reasonable Price (GARP). The measure is used to value growth stocks. In the case of a growing company that also pays dividends (a sort of hybrid), the measure fails to incorporate the portion of capital return from the dividend yield.

The paying out of dividends weighs on growth for companies that can readily find it. It is also a substitute capital use (return to shareholders) for a firm that is considered better off not investing toward growth that may be beyond its reach or better suited for other firms. Investors can make the capital investment decision for themselves. For instance, it makes no sense for a company like McDonald’s (NYSE: MCD) to engage in the development of a new electronics product, especially since I can buy Apple (Nasdaq: AAPL), a top notch producer of novel electronics, myself.

Analysts’ earnings models incorporate the drag of the dividend in that growth is tempered (or saved for some) by that other use of cash versus investment in (or destruction of) the business. Still, dividend payouts affect the price of a stock as well, especially when value is largely in current equity, since a fractional portion of its total value is being paid out; and that would lower the P/E ratio to meet the lower growth outlook.

Still, assuming a company can maintain a dividend yield level and P/E ratio level as it grows means a certain return results to the investor. This is what matters, and why my adjustment makes sense. Perhaps this is most pure when the PEG ratio is 1.0 and assumed to stay that way. So, why not add back the dividend yield to the capital growth return expectation or the analysts’ five-year average annual growth forecast, since it contributes to total return just the same? That is exactly what I seek to do in my Kaminis Yield Adjustment to the PEG ratio. Let’s call this the Kaminis Yield Adjusted PEG Ratio or PEG-KYA©™ - this is hereby copyrighted and trademarked, along with all variations and uses including for forecasting target prices for stocks.

Perhaps this argument cannot hold forever as companies age, but what argument can? If it can hold for five years, the length of the growth forecast, then the valuation metric should be valid and useful.

Incorporating the Kaminis Yield Adjustment (KYA) to the PEG Ratio The process is rather simple. All you need to do is to first consider the five-year average annual EPS growth forecast as a capital appreciation or return estimate. Since the dividend yield also contributes to total return, simply add the dividend yield to the five-year growth forecast or the denominator of the PE/G ratio. This gives us a total return estimate, which we can then compare to the P/E ratio value. It’s going to give credit to a company for its dividend payout, and more accurately reflect value, especially in the case of hybrid growth/dividend payers. This measure can also be used to estimate future value and to forecast target prices. I’ll produce a second article to help investors to do that. Look for additions and corrections within the comments of this blog post.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Martin Luther King, Jr.

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Today is a special day for the whole of humanity. It is the day we remember the life of a man who testified for the equality of mankind. When we had strayed, this man subjected himself to persecution in order to remind us that all men are created equal. The day, the man and his life's accomplishments symbolize all that is just and true. This spiritual leader will forever inspire men to fight for righteousness in the face of impossible adversity. He lived the life we are all meant to live, a saint's life. What he accomplished with love, no army ever took by force. Today we honor one of the greatest men to ever have walked the earth, Martin Luther King, Jr.

Here for your viewing, we've placed the video of a shining moment in a brilliant life, MLK's heart-warming, hopeful and God pleasing "I Have a Dream" speech. If you do not see the video from your vantage point, please click here: MARTIN LUTHER KING - I HAVE A DREAM


Please see our disclosures at the Wall Street Greek website and author bio pages found there. (Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Inaugural Addresses in American History

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If you do not see the video player from your vantage point, please click through the link here to find: INAUGURAL ADDRESSES IN AMERICAN HISTORY


Please see our disclosures at the Wall Street Greek website and author bio pages found there. (Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

Tax Loss Selling - Take Capital Losses!

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By The Greek: Economy & Markets:

The final trading day of the year marks investors' last opportunity to take advantage of securities losses for the sake of tax reduction. So, if you can record a net capital loss, you might save yourself a few bucks or even boost your refund come tax tally time.

(Article interests: NYSE: HRB, Nasdaq: INTU, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

If you have paper losses on stocks or other securities that qualify as capital assets, and have yet to record a net capital loss of up to $3,000, you should be considering it. After all, why sit on a loss that can create cash flow for you now.

Maybe you love the stock or the sector you're invested in, and you fear selling just when the market or stock might turn around. Well, in that case, you might replace your sold shares with the shares of a similar or replacement firm. For instance, suppose you owned Google (Nasdaq: GOOG) all of last year. In that case, you're sitting on a 55% paper loss as of Wednesday afternoon. Why not record some of that loss now to save yourself tax dough? You can take that loss and distribute it against capital gains, thus avoiding the related tax. If you still have some losses left over, you can also offset your taxable income up to $3,000. If you have even more losses than that, fear not, as you won't lose opportunity. Those extra losses will be put towards offseting gains and income in future years. Heck, this almost makes losses taste good.

"Yeah, but Greek," you're saying, "I love Internet search over the long-term, especially Google." Okay, well, you can buyback GOOG shares after 30 days have passed and the wash sale rule no longer applies. The wash sale rule is in place to prevent people taking advantage of the system by selling off shares for tax purposes, but effectively keeping their holdings by repurchasing the same shares immediately. Basically, if you repurchase the sold shares within 30 days time, you can't take that loss on your taxes.

When you repurchase your Google position in 30 days time, you'll start off with a new and lower cost basis (or purchase price times shares purchased plus commission), assuming the stock has not recovered that ground. Now this might work to raise your long-term capital gains if you plan on holding the stock for a while and it appreciates, but remember the time value of money. Take the cash back now, and worry about future taxes later. There's no guarantee the stock will appreciate anyway, and you'll likely have new losses to counter against it in the future.

"But," you ask, "what if Google recovers in early January because of the "January Effect," or because people like you sold it in November and are now buying it back." Well, the same issues your stock suffers from might also apply to many other stocks, especially close peers. In that case, why not replace Google (or your stock), at least temporarily with shares of Yahoo (Nasdaq: YHOO) (or a similar name). In the Yahoo case, as a bonus, you also get a beaten down stock, whose stubborn CEO is about to take leave. You might get an extra benefit if Yahoo agrees to acquisition after Jerry Yang moves on. At the very least, replacing the shares with a peer should help to limit your risk of missing industry or overall market recovery.

Remember that if you have less losses than gains, the situation is altered some. First you must net your long-term gains against your long-term losses and your short-term gains against your short-term losses. Short-term gains are taxed at a higher rate than long-term, so this comes to play if you have a net gain to report. Please see the IRS file for details on Capital Gains Tax.

Taking a loss on your investments is always a painful experience, but the pain can be eased by using those losses against taxable income on your return. You still have a little time to save some money this season, so why not give yourself a tax break if you can.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Throwing Out the Kitchen Sink in Q4

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By Markos N. Kaminis - Economy & Markets:

Corporate managers typically use the fourth quarter to clean their books, and prepare a fresh slate and low bar for the coming year. Management will write off most suspect assets in the last quarter of a bad year. This year offers an especially opportune moment for such a trashing, as expectations for it are high and broad reaching. As a result, the impact on share price and scrutiny of management's performance should be minimal. So, this year, the corporate junk yard should be full of kitchen sinks.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

The term, "writing off the kitchen sink" illustrates the depth with which companies will go to clear their books in a bad year. The analogy is drawn to a house cleaning, where you might throw many things out. The last thing you would trash is the kitchen sink, which has a daily utility value. Therefore, when companies "throw out the kitchen sink" they go far.

The market decline of recent days has been attributed to fourth quarter concerns. It has been suggested that the market has only just considered that the fourth quarter could be horrible. We argue that current valuations should already incorporate consideration for both a dire Q4 and tough outlook for '09. Nevertheless, forward guidance and operating actions should prove more distressing for some than others. Also, despite market efficiency, we concede that market sentiment plays a role in setting expectations and in exacerbating them. One might argue this only further proves market efficiency.

No Stigma & Plenty to Gain

It's been a rough year! In the midst of deep economic recession, and with the S&P 500 Index down roughly 41% year-to-date, the exchanges are full of companies reporting losses. Besides the battlefield littered with the dead bodies of the likes of Lehman Brothers, the so-called saved Bear Stearns, Countrywide Financial, IndyMac, Linens 'n Things, Polaroid, and the dead men walking: AIG (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), there are scores of half-baked companies just barely surviving. In a market like this, and with peers and rivals also reporting worst nightmare type earnings, there's very little stigma attached to failure. It's the norm!

Record lows are being set across economic data points and corporate press release pages. Toyota Motors (NYSE: TM) for instance, just noted expectations for the first loss of its history. General Motors (NYSE: GM), Chrysler and Ford (NYSE: F) will likely write-off both the kitchen sink and the toilet, where they may end up flushed down as well eventually. Everywhere you look, in every industry and sector (some more than others) companies have incentive to shed troubled assets. After all, if you keep them, you risk tarnishing your 2009. More importantly to cash strapped firms, losses often represent a good tool for tax reduction and cash flow creation.

For banks, write-offs this year will not be a new thing, not even for the span of their recent history. Still, many new-born banks, or those passing through metamorphosis, are in a fiscal year "stub" period this December. Once proud investment banks like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and J.P. Morgan (NYSE: JPM) are now commercial banks, or owned by others who are. This means their fiscal years move from October or November-end to December-end. As a result, the December period becomes a stub. All the more reason to write stuff off! It won't even make last year's reporting period! It'll get lost in history.

For companies across American industry, 2008 will be the watershed year everyone remembers decades from now. That's if 2009 doesn't top it! The losses are mounting and companies have both incentive and opportunity to be rid of ailing assets. Those business lines that hadn't been paying off as expected, can now be axed and forgotten in the fog of the 2008 recession.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.